Services
Know what the business really earns.
A Quality of Earnings report rebuilds a company's numbers to their true earning power, so you can buy, sell, or lend with the real figure in front of you and no surprises after the deal closes.
The Basics
What is a Quality of Earnings report?
A Quality of Earnings report is an independent rebuild of a company's financial results, done by a CPA who works for you rather than for the other side of the deal. It answers one question: of the profit this business reports, how much is real, repeatable, and going to still be there after the owner leaves.
It is not an audit
An audit asks whether the financial statements follow the accounting rules. A Quality of Earnings report asks what the business actually earns. It looks past the statements to the tax returns, the payroll records, the leases, and the deal documents, and it is built for a buyer, a seller, or a lender rather than for a regulator.
It produces Adjusted EBITDA
Reported profit gets normalized: one-time items removed, personal expenses tested, a departing owner's pay replaced with what the job actually costs. What survives is Adjusted EBITDA, the earnings figure a purchase price and a loan are both built on top of.
It settles arguments
A seller's addback schedule is an opening position. A lender's credit memo needs a defensible number. A Quality of Earnings report puts an independent figure between the two, with every dollar tied to a document, so the negotiation is about the deal instead of about whose spreadsheet to believe.
Who this is for.
Buyers running diligence on an acquisition, sellers preparing for a sale, and lenders underwriting an SBA 7(a) or conventional loan, who need an independent read on what the business actually earns.
Best fit when the seller's numbers rest on addbacks, related-party arrangements, or a departing owner, and the deal turns on getting Adjusted EBITDA right.
How we work.
Every engagement begins with a written scope, a fixed fee agreed before any work starts, and a short intake to settle the deal frame: what's being acquired, who replaces the owner, and which years we analyze.
You receive two documents. First a Seller Addback Evaluation, where every addback the seller claims is rated on the evidence and you decide which ones to carry forward. Then the Quality of Earnings report itself, built on the set you confirmed.
A licensed CPA does the analysis end to end, the same person you talk to about it. You get a secure portal for the data room and a report built to hold up under a lender's review.
The Approach
From raw financials to a number you can stand on.
Every report follows the same disciplined path, so nothing goes from a client document straight into a conclusion.
Set the Deal Frame
Before a single number moves, we put the deal in writing: assets or equity, whether the real estate is included, who runs the business after close, which years we analyze, and who will rely on the report. These answers change the earnings figure materially, so they get settled first rather than discovered later.
Reconcile & Recast
We tie the seller's financials to the filed tax returns, mine the data room for what the P&L doesn't show, and recast thirty six months of results onto a clean, consistent basis. Where the seller's adjusted statements and the tax returns disagree, we use the returns and say so.
Test the Addbacks
Each seller addback is grouped, evaluated on the evidence, and rated one to three stars in a standalone Seller Addback Evaluation. Ordinary costs that continue under new ownership do not quietly inflate the number. You review the ratings and confirm which addbacks carry into the report.
Report & Tie Out
You receive a clear report on one Adjusted EBITDA basis, with the key insights, red flags, and financing math laid out. Before it reaches you or your lender, every figure is recomputed and tied back to the workpaper, because two earnings definitions in one report is the failure that costs a deal its credibility.
The Essentials Package
Everything a small-business deal actually turns on.
Essentials is the complete engagement, not a teaser tier. Thirty six months of results rebuilt, every seller addback tested, and the financing math a lender will run anyway. Two deliverables, both branded, both tied line for line to the workpaper behind them.
Seller Addback Evaluation
Deliverable one
Every addback the seller claims, grouped by economic item, rated one to three stars against a written standard, with a plain assessment of what the evidence supports. Items outside EBITDA, such as depreciation already added back or one-time grant income, are shown and explained rather than silently dropped. You decide what carries into the report.
- check Summary table of every proposed addback by year
- check Confidence rating on each group, with the standard stated
- check Why the seller added it, what support exists, and our assessment
Quality of Earnings Report
Deliverable two
A lender-ready PDF built on the addbacks you confirmed, presented on a single Adjusted EBITDA basis from the first page to the last. Monthly charts, a full EBITDA bridge, and the financing analysis a credit officer runs anyway.
- check Delivered through a secure client portal
- check Every figure recomputed and tied to the workpaper before release
- check Written handoff of assumptions made and items still open
- check One re-run included if the deal frame changes
Inside the report
What the analysis covers.
Company Overview
Background on the business and what it actually does, plus a financial snapshot of the analysis years side by side and a read on the revenue trend.
Income Metrics
Revenue and gross profit across thirty six months, charted, with growth, compound growth rate, run-rate trend, seasonality, and the peak and valley months of the last twelve.
Expense Metrics
Monthly payroll charted against revenue, the highest cost drivers ranked, and the rent and occupancy picture including the real lease terms and who the landlord is.
Seller Addbacks
The addbacks credited to Adjusted EBITDA, by year, and the ones excluded with the reason each was left out.
EBITDA Analysis
The full bridge from operating income through net income to EBITDA and Adjusted EBITDA, plus a month by month EBITDA table for the most recent fiscal year.
Fixed Asset Analysis
The operating assets included in the sale, grouped by category and by the decade they were placed in service, so you can see what is genuinely useful and what is fully depreciated.
Financing Analysis
Debt service coverage against the 1.15x SBA minimum and the 1.25x comfort target, the purchase multiple, cash flow after debt, the maximum supportable purchase price, and a heat map of coverage by price and seller-carry term.
Other Items to Note
The things that do not fit on a financial statement but change how you read it: related-party arrangements, deal structure, operating context, and the risks worth pricing.
Add-Ons
Scope the diligence to the deal in front of you.
Not every deal needs every test. A cash business needs proof of cash. A business with unreliable books needs the income statement rebuilt from the bank statements. A distributor needs concentration and aging work. Add what the deal calls for and leave the rest.
Recast P&L from Bank & Card Statements
Where the books are unreliable, incomplete, or missing, we rebuild the income statement from the bank and credit card statements themselves, coding every transaction across the analysis period. It is the only way to get a defensible earnings figure out of a business whose bookkeeping cannot be trusted.
Proof of Cash
We reconcile reported revenue and expenses to the bank statements month by month. It is the strongest single test that the books reflect real money moving, and it is the one that matters most in a cash-heavy business.
Balance Sheet Analysis
We review assets, liabilities, and equity to test financial stability and liquidity, and flag the related-party balances, owner loans, and year-end oddities that will not survive the close.
Adjusted Net Working Capital
We normalize working capital across the analysis period to establish the level of receivables, inventory, and payables the business actually needs to operate, which is the figure a purchase agreement pegs against.
AR & AP Aging Analysis
We age receivables and payables to test collectability, stretched vendor terms, and whether the profit on the income statement turns into cash that actually arrives.
Customer & Vendor Concentration
We measure revenue by customer and spend by vendor to size the risk that one relationship carries the business. It is the first question a lender asks and the last thing a seller volunteers.
Book-to-Tax Reconciliation
We reconcile the books to the filed returns and explain every difference, so the earnings figure you are buying and the tax record the IRS holds tell the same story.
Payroll Reconciliation
We tie payroll registers and the quarterly and annual filings to the labor lines in the financials, confirming that the largest cost in most small businesses is stated correctly and that everyone on the payroll actually works there.
Additional analysis years and additional locations or operating entities are also priced as add-ons. Everything on this page is quoted as a fixed fee in the engagement letter before work begins.
Pricing
Estimate your engagement fee.
Start with the Essentials package, then add what the deal calls for. The estimate updates as you go. Your fixed fee is confirmed in the engagement letter after a short scoping call.
This is an estimate, not a quote. Your fixed fee is set in the engagement letter after a short scoping call, once we know what is being acquired, what condition the records are in, and what the lender needs. Additional locations or operating entities, expedited turnaround, and any work beyond the modules above are quoted separately. Deals above $10M in revenue are quoted individually.
Why this matters
The price follows the earnings. Get the earnings right.
Most small-business deals are priced off a multiple of Adjusted EBITDA. When the earnings figure is built on optimistic addbacks or a below-market owner salary, the price built on top of it is wrong, and the financing stacked behind it is too.
An independent Quality of Earnings report replaces the seller's version of the number with one that holds up: reconciled to the tax returns, tested against the data room, and presented on a single, conservative basis a lender will accept.
Whether you're buying, selling, or underwriting, the cost of the analysis is small next to the cost of paying, accepting, or lending on the wrong number.